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Record Keeping

Do your employees use company vehicles for private use? You could be liable for a Fringe Benefit Tax aka the FBT, here is what you need to know.

WHAT DOES A FRINGE BENEFIT TAX APPLY TO?

Fringe benefit is another way of say non-monetary reward, this includes

Company vehicles available for private use,

Free, subsidized or discounted goods and services,

Special low-interest loans

Employer contribution to insurance or superannuation schemes.

*FBT does not apply to a sole trader or partnership businesses, instead adjustments are made to their GST and PAYE tax payments.

The private use of a company vehicle can be overlooked as a benefit in addition to remuneration because of our friendly lend a hand kiwi culture, but the tax man doesn’t see it that way.

FBT can apply to all work vehicles including operation and finance leased, (if you’re not sure what that means check out our last post) and a vehicle owned by the company. It is important to note that if a vehicle is available for private use by an employee or shareholder, regardless of whether use occurs or not, the employer has a liability for an FBT.

However, there are exemptions for the FBT if your company vehicle meets all of the following:

The principle design is not for carrying passengers, these include utes, light trucks and vehicles altered to permanently not have rear seats.

The company’s name and logo must be permanently and prominently displayed on the vehicle.

The employees and shareholders must be informed that the vehicle is for work purposes only with the exception of traveling between work and home. It is preferable this be done in writing or ideally in the employment contract.

The company must complete quarterly checks of the logo book and petrol purchases for the vehicle. Accurately maintaining these records is very important.

If your company vehicle meets the above criteria but is available for private use on particular days for employees on call outs outside normal hours you can be eligible for a partial exemption.

However, if the above criteria are met and the vehicle is stored at a shareholder’s home and the business premises is also the shareholder’s home, the vehicle cannot under any circumstances be used for private purposes if the company wishes to avoid a FBT. If the shareholder’s home is a secondary work premise, EG a home office, then a restricted private use condition can be applied.

WHAT DOES IRD LOOK FOR IN RESTRICTED PRIVATE USE?

The employer must have clear details on the restrictions, confirm and provide evidence that the employee is aware of these restrictions, and at request produce a log book of both personal and business mileage proving observance of the restrictions.

NB: If the log book records are not regularly monitored, the vehicle is available for private use on the weekends, or the signage on the vehicle is removable the IRD can enforce a FBT

FBT DOES NOT APPLY IF

The vehicle is stored on the company premise which is not a shareholder’s home

The vehicle has a gross laden weight above 3,500 kilograms

If an employee contributes towards the value of the vehicle by way of payment to the employer

HOW IS FBT CALCULATED?

FBT is calculated on either the vehicle’s cost price (including GST) or on its “tax value” (ie depreciated value at the start of the income year in question). Once you elect to use a method you must continue using that method until either:

the vehicle is sold

the vehicle lease ends

five years have passed

Vehicle Cost Price Method

Every quarter 5% of the vehicles cost price inclusive of GST is multiplied by 49.24%

Tax Value Method

Every quarter 9% of the vehicles depreciated value inclusive of GST is multiplied by 49.25%

NB: Liability is reduced by the number of the days the vehicle was not available for private use or was exempt from FBT.

WHEN DO COMPANIES USUALLY PAY FBT?

Most small businesses will elect to file and pay FBT annually. A quarterly option does exist and is mandatory for employers whose gross amounts of taxes in the preceding year exceeded $500,000.

FBT is a tricky subject and often it is better to be safe than sorry when it comes to the tax man, check out the IRD website for FBT on Company Vehicles or give us a call.

Happy 2016 from your Nelson and Marlborough based Chartered Accountants! It’s the time of year where you could and should be assessing the way you want your business to grow in the coming calendar year.

To help you achieve your potential, we thought we’d pop together a list of our top 4 New Year’s accounting resolutions you should adopt now!

Get on the cloud – If you haven’t already switched over to a cloud based accounting system, then now is the time to make the move, your business could make big gains from taking this step. Read this article from our archives to discover what they are.

Update your budgets and forecasts – This should be part of your business’ ongoing strategic plan. Remember our business advisory team can help you with this and so much more.

Fix up your filing – Keeping good records is imperative for business success. If you’re just starting out in business speak to us about the form your business records should take. It’s important to think about not only the filing of documents, payment of wages, banking and other records – but also the extent to which you should maintain records that will assist your Chartered Accountant in preparing your financial statements.

Meet your deadlines – If you don’t settle accounts payable on time you could incur late payment fees. If you don’t file your financials before the IRD deadline, you’re basically throwing money down the drain. This expense is so simply avoided by planning to meet payments and deadlines on time.#jastoptip – You should also be invoicing regularly at the end of a set period, this will increase your cash flow, allowing you to meet payments.

A wise person once said “For every minute spent organising, an hour is earned.” We know time is money so we focus on putting processes in place that keep us, and our clients on the right side of the line in terms of business and finance organisation.

We’ve had lots of experience helping small business owners, so we’re only too aware of the headaches that accounting can cause for many. It’s one of those tasks that you don’t necessarily take into consideration when you decide to run your own business, and yet it can take up much of your valuable time.

But for all of you that feel you spend too much time keeping your business finance accounts in order, there is hope, and it all begins with organisation.

Here are 3 simple tips that we know will help you get your business accounts in shape:

Don’t mix business with personal – If you choose to use your personal account for business transactions, you’re asking for trouble. It just gets too confusing! Shop around with the banks to find out what facilities and terms they offer their business customers and choose a bank offering an account that suits your requirements. Once you have your business account set up, use it exactly for that and keep your personal account for personal expenditure. Transfer owner drawings from your business account as and when required.

Avoid using cash – Cash might be king, but it really does muddy the waters when you’re trying to keep your business accounts organised. If you do need to use cash, then reimburse yourself using an expense claim this keeps your business transactions recorded and ensures that GST is accounted for.

Keep your records and receipts – That doesn’t have to mean bulky piles of paperwork. There are many smartphone apps that will digitise and file your receipts on a cloud server. If you use Evernote, you’ll know it has capability for this. Other apps of note include Camscanner and Genius Scan.

Of course, the other thing you can do to get yourself organised, is call in a pro. If you’re starting out, one of our team members can happily help you with set up, so you get it right from the get-go and reduce headaches later! Get in touch HERE.

As your Nelson and Marlborough based Chartered Accountants it’s time for us to start concentrating on the preparation of your Annual Accounts, and so we’ll be asking you to complete the Johnston Associates South 2015 Client Questionnaire, so we can begin preparing some of your records.

Why it’s important to keep your records.

Business Growth. Keeping good records will ensure you have all the information you need to manage your business and make sound decisions in terms of business strategy.

You’ll save money. Time is money and having everything to hand will save you costs somewhere along the line.

To prove your deductions are legitimate. The IRD carry out routine business audits, if this happens to you, having your financial records organised and on hand will definitely make the process smoother and faster.

How long do you need to keep them for?

Accounting records and all the associated documents must be maintained for the current accounting period and the last 7 completed accounting periods of the company

What should you be keeping?

details of all income received (copies of invoices issued etc);

all tax invoices and receipts for purchases, insurance, power, phone and all other costs incurred; (For GST you do not need to hold a tax invoice for items costing less than $50, but you do need to maintain a record of such payments. For income tax, you should have invoices for all expenses, whatever the amount).

credit and debit notes;

bank statements;

cash books or computerised accounting records;

wage records for any employees;

interest and dividend payments;

a list of business assets and liabilities;

motor-vehicle log books;

details of entertainment expenses for clients, staff or suppliers;

any other necessary documents to confirm entries in your accounts.

But there’s more…

The Companies Act 1993 sets out the statutory record keeping requirements for all registered New Zealand companies. These requirements include the retention of;

Company Constitution

Minutes And Resolutions

Written Communications To Shareholders

Register Of Directors

Register Of Interests

Share Register

Financial Statements

Accounting Records

If you do have any questions regarding your obligations, or what records are prepared by us as part of your Annual Accounts please feel free to contact us.